Stock sale

There’s been quite a slew of stock selling posts in the blogs I read lately and today I’m joining them. I sold some shares today as the market reached yet more all-time highs; here’s why and what I’ll be doing with the proceeds.

What I sold

This evening I sold all my shares of Air Products and Chemicals (APD). I didn’t have that many (7.1369) and with a sale price of $1,123.35, I made a a 38% long-term gain against a cost basis of $810. I bought my first shares back in 2013 and some more in 2014.

Air Products and Chemicals is currently restructuring and will be spinning off its materials division later this year as a new company Versum Materials. This will allow it to focus on higher-margin products as it continues to transform itself to improve margins and operating performance.

The outlook on APD is generally positive as reflected in the current 52-week high share price. It’s also a consistent dividend growth company with a 34 year history of dividend increases.

My decision to sell is not due to

The high share price

I think the company will do badly going forward.

Worries about the market-highs and moving to cash

Why I sold it

I sold the shares for the following reasons:

1. Versum Materials spin-off

The Versum Materials spin-off will give me unwanted shares in an initially non-dividend stock as the new company finds its feet. The proposed 1:2 stock offer would give me about 3 shares of Versum with a smaller taxable cash payout because of partial shares.

Now I know that Versum could become a great dividend paying stock and have sustainable growth over the next 40 years. I hope it does, as I also hope APD continues to grow and prosper. I just don’t see myself rushing out to buy more shares of Versum over time. And will 3 Versum shares really make a difference relative to my overall portfolio size over the next 40 years?

This is the main reason I sold; without this spin-off I likely would not have sold this stock. There were some other reasons below that contributed however.

2. Simplification

As part of my general strategy to reduce the percentage of individual stocks that I hold to around 10%, I’m generally trying to purchase more of the two dividend funds that form the bulk of my portfolio (VHDYX and VIHAX), rather than sell out of individual stocks.

But I also would like to concentrate in a smaller quantity of individual companies with larger positions. I don’t feel the need to hold a diverse portfolio any more since VHDYX contains about 424 dividend-paying stocks, including, you guessed it, APD at around 0.35%.

3. Brokerage Consolidation

My APD shares were held at Capital One where I have higher brokerage fees. Over the long-term, I plan to consolidate all stock holdings at Vanguard. While I’ve not had any trouble using Capital One as a brokerage and I appreciate some of the reports and research tools they have, it makes for more complicated tax filings and money transfers. This is another aspect of my portfolio ‘simplification’.

Because I hold partial shares there, transferring the stocks over in-kind requires the partial shares to be sold which is quite expensive.

I’m generally looking to move stocks over that have zero capital gains so this sale is an exception triggered primarily by the spin-off. However it helps my overall goal and reduces the number of companies I hold at Capital One down to 29.

What I bought

I used the proceeds to buy more shares of VHDYX. This exchange really means that I’m selling $1,123 worth of APD and buying a tiny amount of APD ($4) in addition to several hundred other dividend paying stocks with the remaining $1,119.

Based on my total US stock holdings at the end of August ($136,235), this transaction adjusts the allocation of APD from 1.07% of US stocks to 0.25%. Or considering my entire Income Fund, from 0.56% to 0.13%.

I’ll also lose out on the APD dividend payment which goes ex-dividend on 9/29 and is paid in November. However the additional VHDYX shares will pay two sets of dividends before the end of the year (September and December) and at a higher yield (~3% compared to ADP’s 2.1%).

There’s a ~$50 tax cost to this transaction which I’m glossing over since I’ll pay it next year and it’ll be lost in the noise of my tax filing.

Summary

Forcing myself to write a post about each sale makes me reconsider my actions each time. I end up waiting a few days once I have an inclination to sell a stock and most times I end up continuing to hold.

In this case though I decided to go through with the sale after thinking about it for the last few days, because of the spin-off. Although APD is a good quality company, I think it’s one of many in my portfolio and I value the time saved in having two less stocks to manage.

Quote of the Day

Mutual funds have historically offered safety and diversification. And they spare you the responsibility of picking individual stocks.

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5 thoughts on “Stock sale”

Ciao DL,
Your “destocking” continues I see! 🙂 I am starting to consider some funds as I am willing to consolidate some positions to increase my option trading possibilities. In that sense a fund allows me to keep diversified. I see you are full on Vanguard, and for what I see you are quite happy with the choice am I right?
ciao and keep it up!
Stal

Hi Stal,
Yes this was mostly being proactive to avoid ending up with 3 shares of a company I’m not all that interested in. I may consider a smaller stock purchase (of an existing position) later this month but I’ve not had time to review that yet.
I’m happy with Vanguard – the funds are cheap and I believe they’re well-managed. As far as the two dividend funds I’m invested in, I consider their performance “good enough” and I can re-balance between the US and the International fund by buying more of the worst performing one.
I doubt I’ll ever sell some of the individual stocks I hold, but some such as AWR and BMS I think I’ll eventually exit. I’m not in any real rush though.
It looks like you had a great August from your monthly summary – congrats! 🙂
Best wishes,
-DL

Vanguard is somehting that unfortunately it’s hard to buy here in Italy, but now that I am on Interactive Brokers maybe they trade the funds… As to my August, options were in play massively, but now that the money is locked in (as I trade only covered options) there is little action on that front, and actually some negative deals are coming up… Let’s see, the real challenge is going to be 2017 for me as I will have a term of comparison that it’s more accurate as the capital in play will be more or less the same… Ciao ciao
Stal

Hi DFG,
Yes, aside from the higher fees at Capital One, I’m big on automation and right now I can’t automate transfers out easily. Vanguard lets me receive dividends via ACH bank transfer in addition to re-investing or paying to the settlement cash. But I’m not going to pull the band aid off in one go, I’ll slowly move assets across as I think it makes sense.
Best wishes,
-DL

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